United States: FERC Denies Cooperative's Proposal To Charge Members For Losses Associated With QF Power Purchases

On June 16, 2016, FERC denied as inconsistent with section 210 of the Public Utility Regulatory Policies Act of 1978 ("PURPA") a proposal that would require members of a generation and transmission cooperative to compensate the cooperative when the members purchase power from qualifying facilities ("QFs") instead of from the cooperative. Specifically, Tri-State Generation and Transmission Association, Inc. ("Tri-State") had petitioned FERC for a declaratory order finding that Tri-State's policy of requiring compensation from Tri-State's members when they purchase power from QFs in excess of five percent of their requirements is consistent with PURPA. FERC denied the request.

Tri-State is wholly-owned by its forty-four member distribution cooperatives. Each member has a wholesale power supply agreement with Tri-State which provides that it may self-supply up to five percent of its requirements, but thereafter the member is obligated to purchase the remaining ninety-five percent from Tri-State. One member of Tri-State, Delta-Montrose Electric Association ("Delta-Montrose"), petitioned FERC for a declaratory order finding that Delta-Montrose's obligation to purchase power from QFs under PURPA supersedes any conflicting provisions in Delta-Montrose's requirements contract with Tri-State limiting such purchases. On June 18, 2015, FERC granted this petition (the "Delta-Montrose Declaratory Order").

On March 2, 2016, following FERC's granting of the Delta-Montrose Declaratory Order, Tri-State adopted a compensation policy requiring member cooperatives, such as Delta-Montrose, to pay Tri-State for all unrecovered fixed costs associated with a member's QF power purchases that exceed the five percent limitation. In its petition for a declaratory order, Tri-State explained that its proposed fixed cost recovery is calculated based on the difference between Tri-State's wholesale rate to its members and Tri-State's own avoided cost rate. Tri-State claimed that if the policy is not upheld, then it would lose revenue due to its members' purchases from QFs and would have to consequently allocate those costs to its other members.

Delta-Montrose and a group of environmental advocacy organizations protested Tri-State's petition. In its protest, Delta-Montrose argued that Tri-State's proposal is a collateral attack on, and inconsistent with, FERC's decision granting the Delta-Montrose Declaratory Order. Other protesters argued that Tri-State's fixed cost proposal will negatively impact QF development and limit opportunities for QFs to sell renewable energy to nonregulated electric utilities.

Tri-State responded that its petition is not a collateral attack on the Delta-Montrose Declaratory Order because it only addresses Tri-State's proposed fixed cost recovery mechanism, whereas the Delta-Montrose Declaratory Order addressed QF purchase obligation issues related to PURPA. Tri-State argued further that its policy neither limits any QF from selling power to any member, nor limits any member from purchasing power from a QF.

FERC disagreed. In its order denying Tri-State's petition, FERC found that "Tri-State's proposal seeks to undermine the Commission's prior order in Delta-Montrose by imposing financial burdens on Delta-Montrose that could affect its purchasing from QFs above the contract's five percent limitation." FERC found further that Tri-State's proposal would limit a QF's ability to sell output at negotiated rates. FERC rejected Tri-State's claim that if its petition is rejected, then it would have to allocate costs among the other members, noting that Tri-state can, and currently does, sell excess power in the electricity markets.

The order is available here.

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